SembCorp Industries: HSBC initiate Coverage with O/w call and $5.40 TP. House note that despite the patchy macro environment and market turmoil, expect offshore spend to be strong at UU$75-80b p.a. in next 4-5 yrs, driven by a confluence of factors, including energy demand, high oil prices, ageing fleets and strong customer balance sheets.
Utilities segment will also provide stability as grp typically enters into long-term utilities supply contracts of 15-plus yrs with industrial customers or government agencies. Its operations span 14 countries with market leading positions in SG, UK and China.
Overall, house expect 3-8% pa profit growth in 2012-14. Recent new utilities projects are now poised to contribute. For SMM, expect new O&M orders of $3.9-4.4b in 2012-14. With the capex hump for both SCI and SMM likely to be behind in 12 mths, the resultant de-gearing provides the potential for 2.0-2.5% dividend upside.
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